Kerala High Court Directs ED To Furnish Verifiable Reasons For Investigating Ex-Minister Dr Thomas Issac & KIIFB In 'Masala Bonds' Case

Yesterday, a Division Bench had set aside the order of the Court that permitted issuance of fresh summons to Dr Issac and KIIFB.

The Court has asked the ED to provide verifiable reasons on which the investigation was being conducted against Dr Issac and KIIFB. It also sought information from the ED to prove its jurisdiction to conduct the investigation under the FEMA.

Justice Devan Ramachandran was hearing the arguments of Additional Solicitor General of India (ASGI) A.R.L.Sundaresan, instructed by Standing Counsel for ED Jaishankar V.Nair, Senior Advocate Arvind Datar for the KIIFB.

Regarding the issuance of summons, the Court observed that an investigation can be conducted by the ED without issuing summons and no authorities could interrupt the investigation. It stated that the ED cannot summon people without any valid complaint/basis.

The Court orally stated that an investigation could be conducted by using documents, and issuing summons was not mandatory as there were no pending proceedings based on which summons could be issued.

“There should be some reason why you are initiating an action and when you are summoning people. You can conduct investigation, nobody can stop you but to summon people you must have some information from an investigation that such a person requires to be summoned. You cannot summon people for collecting information.”, the Court orally observed.

The Court remarked that Dr Issac was a citizen having legal remedies and he has used his legal remedies against issuance of summons.

“He is an individual citizen having protection and therefore he uses his remedies…he is a man in the public domain and whenever summons are issued it is used by certain other people with interests for other reasons.”, the Court orally stated.

Furthermore, it observed that the ED cannot conduct a roving inquiry. It remarked that there is a distinction between a roving inquiry and a proper inquiry, which could not be carried out by a central agency such as ED. 

The Court also took note of the fact that the officials of KIIFB had appeared before the ED at least seven times. The Court enquired with the ED to how they were conducting the investigations. It enquired as to why an investigation cannot be carried out without issuance of summons. It observed that based on the order of the Division Bench, no fresh summons could be issued at the present stage.

The Court also noted that there were no pending proceedings based on which a summons could be issued and thus stated that it has to be satisfied that the ED was acting based on valid and verifiable information for carrying out the investigations.

The Court further enquired as to what was the sub-stratum or basis on which this investigation was conducted by the ED against Dr Issac and KIIFB. It stated that there should be a reason for investigation and the ED cannot be fishing for information.

ED had issued summons to KIIFB, and the then Finance Minister, Dr. Issac, alleging violations of provisions under the Foreign Exchange Management Act (FEMA) for raising funds by issuing rupee-denominated bonds (masala bonds) abroad.

KIIFB and Dr. Issac thus filed separate petitions before the High Court challenging the issuance of the same. A Single Judge Bench of Justice V.G. Arun had, on October 10, 2022, stayed further issuance of summons against KIIFB and Dr. Issac.

The matter has been posted for further hearing on 14^th December 2023.

Case Title: Kerala Infrastructure Investment Fund Board (KIIFB) v. Director, Directorate of Enforcement and connected matter

Case Number: WP(C) 26228/ 2022 and WP(C) 25774/ 2022